Taxpayers Help Automakers: Whom Would You Bet Your Money On?

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November 3, 2008

In the December issue of Automobile Magazine, editor Jamie Kitman excoriates American auto manufacturers. He claims they should've seen the handwriting on the wall with the energy crisis of 1973 and started making better small cars then. And if you call the new-for-1979 Chevy Caprice (some 600 pounds lighter than its forebear) a better "small car" as the company did back then, well then I suppose they did their job. That basic B-body platform lived on for years, most recently enjoying its last hurrah under GM's 1996 full-size sedans and wagons (Buick Roadmaster, Chevy Caprice, Oldsmobile Custom Cruiser). Those wagons gave way to--you guessed it--GM's full-size SUVs that sold like hotcakes for a few years, but it was short-term thinking that has forced the company's recent decision to both shutter the Janesville plant that builds the behemoths and not to redesign the platform that underpins the full-sizers. So convinced that SUVs were what the market really needed, GM continued to put all its eggs in one oversized basket, also bringing us the GMT360 mid-size SUV platform, soon to be just another bad memory when its factory is shuttered early on December 23.

Meanwhile, companies like Volkswagen ring in with third-quarter profit increases of 28 percent. Such announcements of growth, expansion, and company prosperity sound too good to be true in the midst of the current financial crisis. They underscore the necessity of good long-range planning and a diverse product portfolio. To be sure, VW and Audi do not only produce microcars that sip diesel fuel. They also make gargantuan Touaregs and Q7s, hefty A8s and thirsty Passat 3.6s because the American market has demanded these vehicles. And, yes, those vehicles are in a sales decline at the moment.

But on the other hand, they have long possessed--and produced--ultra-efficient small cars like the VW Lupo, VW Polo, and various Audi luxury sedans that run happily on smaller, high-torque diesel engines. And into their high-lux, heavyweight sedans and SUVs, they've quickly slipped fuel-sipping diesels to keep those models relevant despite market changes. They've also recently developed the novel "twincharger" technology to make tiny gas engines (1.4 liters) act like big ones when they need to, and then quickly return to their miserly ways at cruise. The VW twincharger employs both a supercharger and a turbocharger on a tiny 1.4-liter gas four-cylinder, giving it 158 horsepower and 177 pound-feet of torque starting at 1,500 rpm. Oh, and average consumption of around 39.2 mpg, according to Automobile Magazine, when fitted in the new Golf sedan, and an 8.0-second 0-60-mpg time in that same vehicle.

One could argue that VW/Audi's impressively diverse collection of vehicles and technology is really no credit to them, but rather a natural response to high gas prices in Europe and developing countries--that is, they had to do it. Perhaps they did, but it is interesting that they chose to do this economizing in a way that yields a fun, powerful driving experience (the kind of driving experience, incidentally, that Americans love). That is development work they chose to invest in, and it has taken countless years and huge amounts of money to arrive at such remarkable powertrains that sacrifice neither power, drivability, emissions, nor consumption.

When we made it safely through the gas crises of the '70s and '80s, VW/Audi could have abandoned its dedication to efficiency and just made a bunch of high-cube engines to placate American driving tastes at the time. And to a degree they have done so (Q7 4.2, 13 mpg city). But they also invested in efficiency and economy, giving us strange five-cylinders and chugging diesels at first (winning the hearts and minds of very few Americans), then a handful of smart but underpowered sixes. Then, they hit their stride with the 1.8T, a light-pressure turbocharged four with the heart of a torquey little six. And they haven't looked back since, pushing forward with direct injection across their lineup, new and powerful clean diesels, LeMans-winning diesel race cars, continual refinements to forced induction (super- and turbocharging) to make small engines act big only when needed, and even redefining the way we transmit power from flywheel to the ground (the ultra-efficient, and fun, DSG dual-clutch automated manual transmission). They're at the top of their game right now, having recovered from 50-hp diesels, unintended acceleration, and a decidedly bland lineup in the early 1980s. They, too, had lessons to learn, but they've shown us that they actually did learn from their mistakes rather than reverting to mediocrity when times became easier and money more readily acquired.

All of this hard work is now poised to benefit the American economy to the tune of a new billion-dollar factory in Chattanooga, Tenn., which will produce hundreds of thousands of VWs and Audis. These cars will be built by Americans, and sold only to Americans.

With between $25 billion and $50 billion in low-interest loans backed by you, the American taxpayer, for domestic automakers who were out to lunch when they should've been preparing for different times and different tastes that were sure to come, is it possible the Fed is investing in the wrong companies when it claims to be helping the American people? Which companies should our tax base assist when it comes to the long-term good for America and Americans? What would a truly free market dictate when it comes to investing Federal money?

Jamie Kitman of Automobile Magazine concludes: "We're going to add loans that will further increase the national deficit to assist some major corporations that blew it by failing to prepare for what has been obvious since the energy crisis of 1973, if not longer. Hasn't the marketplace actually just told us that these companies ought to be extinct?"--Colin Mathews
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